How I Invest with David Weisburd
E134: How I Accidentally Started a Billion Dollar Tech Company w/Carta CEO Henry Ward
Fri, 31 Jan 2025
In this episode of How I Invest, I dive deep into a conversation with Henry Ward, CEO of Carta, to discuss his journey building one of the most transformative companies in private market infrastructure. From cap table management to fund administration and beyond, Henry shares his insights on entrepreneurship, innovation, and the future of private equity. We delve into Carta's strategic pivots, its playbook for turning services into scalable software, and Henry's contrarian views on AI and leadership. This episode is packed with lessons for founders, investors, and operators navigating the evolving landscape of private capital.
Chapter 1: How did Henry Ward start Carta?
When you started Carta over a decade ago, you mentioned you started with cap table management as a wedge. How did you get this idea? Was this inspired from your previous experience? And I thought it was a very novel strategy, but why didn't other people have this idea?
You know, it's a great question. I had a different company that failed. One of the investors I worked with on that company, when it failed, he took me to lunch at Typhoon. His name's Manu Kumar. And he says, Henry, you know, K-9. Yeah, K-9. And he said, you know, Henry, this, you know, that company didn't work. It wasn't a good idea, but I think you're pretty good. Yeah.
this cap table problem is a crazy problem. Like I just don't understand how we're, you know, the industry is so bad at it. If you'll start the company, I'll invest in it. Like, I think this is an important company to build. And I'm a, maybe a unique entrepreneur.
Most entrepreneurs, the conventional wisdom is you fall in love with a problem and entrepreneurship is a vehicle with which to solve that problem. I'm different. I fell in love with being a founder and I didn't care what I had to do to become a founder. I'm, fell in love with being a founder. And the problem was the vehicle for me to become a founder, which is a strength and a weakness.
Chapter 2: What is Henry Ward's approach to entrepreneurship?
The strength, the weakness is I'm not committed to one particular vision. I'm just committed to the founder journey. The strength is that means I'm agnostic of which problem I solve, which is you see it in the DNA of Cardinal. Like we'll do anything. Right. We'll cap tables for nine a fund account. Like the stuff nobody would ever, nobody wakes up and goes, you know what?
I wanted to do cap tables for 10 years. Like it just, nobody does that. And so that's the, that's my gift is I'll, I'll do anything to continue the journey. And so he was like, why don't you start this company? And I said, I don't have any better ideas. And that's how we started.
But then it just became this incredibly exciting thing because once we got this tiny little wedge with a seed stage startup, we can start doing everything for these companies and funds. And that's what made the ride really special.
I spoke to a lot of people in the industry and they said, Henry has really big ideas, but he's sometimes pursuing multiple different areas. How is that a strength and how is that a weakness?
I talk a lot about innovation companies versus execution companies. So, you know, back in the day, you know, we were recruiting, you know, against like Rippling or MongoDB or Zoom, you know, and people would say, you know, why should I come to Carta instead of one of those companies? And I said, well, it depends on the kind of company you want to be a part of.
I would call those execution companies. If you're Parker, if you build a better HR system than anybody else in the world, you have line of sight to a billion, 10 billion in revenue, no problem. You build a better database, MongoDB, line of sight to billions in revenue. You build a better Zoom, a video conferencing system, line of sight to billions in revenue.
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Chapter 3: How does Carta innovate and decide on new projects?
You build a better cap table, line of sight to 50 million, 100 million maybe, right? And so we, I would describe as an innovation company, we never had clear line of sight to any large outcome. We were always, oh, you know, we have to innovate our way out of every market or product that we started.
You know, the way I described it is like if you were going to work for one of these companies, do you want to be part of like a super well-defined team, execution, operationally efficient team with clear strategy and line of sight to where they're going?
Or you come to Carta where we're a bunch of misfit, ragtag, you know, guys and gals, you know, with a machete trying to, you know, hack our way through the jungle and find our path out. And that's really the two types of companies. And so for us, we just had to build a company that we knew we were paranoid and still are. Any market we're in will run out of oxygen.
And so we have to keep constantly adding new products and ideas to the portfolio to see which ones will break out. And thank God we did, because if all we did was card X and didn't do all these other ideas that we had, including fund accounting, we'd be dead. Right now, we've got, you know, three main businesses that drive half a billion in revenue.
But I got seven projects in the back that we're working on that will hopefully get us to the next billion.
How do you decide when to start a project, when to close a project?
There's two ways to start these projects, bottoms up and top down. Successful projects tend to be top down. Not necessarily because I have better ideas than the company or bottoms up ideas, but in part because if I have an idea, it gets the whole weight of the CEO and the company around it. These days, like a good idea still needs a lot of muscle to get it out there.
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Chapter 4: What is Henry Ward's contrarian view on AI?
You can't just build an app now and it works. But there are cases where bottoms up ideas work. And so you want to build a function where I spend a lot of my time ideating and working with teams on ideas that I want to flush out with teams. We do hackathons, so that's a great way where people can, and I judge them and people will come and pitch and I'll go, that's amazing. Kill, kill, kill, kill.
This one, come back to me. Let's pull this thread a little further. And then once a year, I do Carta Business School, where I take sort of the 30 top young managers at Carta and I take them to an offsite using some secret location that's beautiful. And we spend three days together and we just ideate. I do some teaching, we do some ideation.
And at the end of the three days, you know, they pitch their best ideas to me. And two of the products we work on today came out of Carter Business School.
You also have a very contrarian view on AI that not many people in the tech ecosystem have. What's your view on AI and how does AI play a role at Carta?
We spend a lot of time on AI. I'm obsessed. I find it so exciting. If you look at most CEOs of scale companies like ours, They're looking for AI to do two things. One is reduce headcount. How do I reduce the number of people working on stuff because I've AI'd all the workflows and the work and I can reduce headcount? And the second is they're trying to turn everything into a prompt.
How do I search better? How do I query something? How do I ask questions? Things like that. And what I've directed our teams is to do exactly the opposite, which is on the first front is don't build AI to reduce headcount. I don't really care about reducing headcount right now. Use, find opportunities to use AI to unlock customer experiences that we couldn't do without AI.
That's literally impossible. Like even if I, you know, could have put a thousand people on this thing, we couldn't do it without AI.
What's an example of that?
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Chapter 5: How does Henry Ward view the challenges of service industries?
One of the great examples is we're now using agents on the back end to fix health checks that traditionally took a human to find. So like you're doing a capital call and then you find that there's a health check that will stop one of the LPs because they didn't pay enough on their last capital call, blah, blah, blah, blah. There's all this stuff.
It takes a human to go in and fix that reactively when we find it. Now agents are modeling, hey, if we did a cap call today, what would that look like? It will find the error and then fix the error. So that when a human does that, when you are going to go do the cap call, it's already fixed and done.
So that's like an example where we're using agents in the background to effectively proactively do it. Typically humans only could do reactively. So we're doing that. The second thing is they're not allowed to use prompts. And this example is a great one, which is our view or my view of prompts is prompts is like the static HTML page in 1996 that says, oh, that's the Internet.
And that wasn't the internet. The internet was something much more complex and exciting and powerful. The static HTML webpage was UX version 0.01 of what the internet was. And that's what the prompt is. ChatGPT had to figure out what's the easiest way that we can expose LLMs to people, give them a prompt. That's the easiest way. But that's actually not the right UX for LLMs.
And so they're not only using prompts, they have to figure out how to access the LLM without using a prompt. And that really means that they're working on and thinking about how do we creatively embed LLMs behind the workflows of what we're doing. For example, my case of like proactively finding these workflow issues is a way of feeding the LLM and the user never knows it.
My view on AI is everybody is going like AI this, you know, they're putting powered by AI, AI everywhere. Look at all the AI. And what I told my product managers is if you really get the AI right, I'll never know. It'll just work. It's a Turing test. I can't tell.
The capital call just comes out and it's right. just seems like a extremely competent human.
Totally, totally. And, you know, it just works, right? That's the Apple thing, right? Why do we all love Apple? It just works, you know, and there is so much complexity that goes around making something just work. And that's what we talk a lot about.
Henry, I don't envy you because you went after a space that everybody hates fund admins because nobody realizes how difficult it is to do it well. So everybody blames kind of the service providers, not necessarily the process.
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Chapter 6: What is the 'Carta Cartel' and its impact on startups?
Expensive, mistakes, variability, and outcomes, so you're not always getting consistency.
That's exactly right. And it's exactly right. You nailed it, David. It's consistency. Why do chains win in restaurants? You would think of anything, food should be a boutique business, right? Like you win by having the better chef. And it turns out, no, chains win. It's because people even take a lesser experience for a consistent one.
And that's why services industries are tough because it's so hard to do services consistently. That's why we talk a lot about this. Why does everybody love In-N-Out? Because it's the same. Any In-N-Out I go to, I know exactly what I'm getting. That's a good quality product. Not great, but good. But the service is so consistent. And that's why software businesses win.
The problem, of course, is if you are consistently bad, everybody hates you. And so it's one of these things that software is like love and hate. Like if we have a bug in our system, if you're a service industry and you have one team that's not good, it just affects the customers of that team. Everybody else is fine. The blast radius is small. We have a one bug in our software affects everybody.
Blast radius is enormous. And they yell at us and they hate us. And Henry, you're so stupid. You can't run a software company. But then we fix it and it's amazing. Everybody loves us. So it's much higher beta, but much higher ROI.
You're also an angel investor yourself. You're in a lot of great companies. Tell me about your angel portfolio.
80% of my angel portfolio is just former Carta people. Carta has been an amazing place, unfortunately, to create a ton of founders. I've had so many amazing Carta employees go start their own company. It's driving me nuts. And they're always the best, of course. all the best people out of Carta and I have to call and yell at them and tell them, stop recruiting my people.
You know, we don't really lose people to other companies. We lose people to starting their own companies. And it drives me crazy. And so now I tell all employees at Carta, don't be a founder. It's terrible. Nobody should ever do this. You should, you know, have a badge and come to work every day, nine to five and grind it out for somebody else. Being a founder is overrated. It's now my pitch.
So you have this unfair advantage where you know exactly how good they are at execution, how smart they are, how good they are recruiting. All these risk factors for typical angel investors are de-risked.
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Chapter 7: How does investing align with being a CEO?
You know, one company goes out of business, they all go work at the other company that's doing better. And, you know, we have one startup that drives me crazy, but 90%, you know, it's not that big. I think it's like 15 or 20 people, but I think 90% of the employees are Carta. So they just go in groups.
I actually have a view that this is kind of the new thing of angel investing, which is like alumni investing. alumni ventures, you know, you invest sort of in your, your, your university, right?
All MIT people invest in support of like, I think what's happening is you're getting the Uber cohorts, the stripe cohorts, you know, the card cohorts, where they all just invest in support each other, because they know each other. And that's, that's how angel investing is going to start to, to coalesce.
A very meta idea. You should start a Carta fund that invests into Carta spinouts. Thank you for listening. To join our community and to make sure you do not miss any future episodes, please click the follow button above to subscribe.
A hundred percent. We actually do this, but it's Balancing Capital. We call it Carta Ventures. There's three theses. One is very conventional corporate VC, which is we invest in strategic companies that we think are strategic to our ecosystem and potential corporate candidates in the future. The second is we invest in emerging managers that are starting funds.
The best way to create more founders is to create more TPs that can go and find and mentor and cultivate and invest in these founders. So that's a big part of our fund administration thesis was how do we reduce the cost of running a fund, starting and running a fund?
And I think we were a big contributor to the boom in emerging managers in the United States is because we took the cost of starting and running a fund from $150,000 to about $20,000 to $30,000. And so we spent a lot of time on that, helping emerging managers get going.
And then the third last bucket is really investing in things that have Carta interest, like Carta employees and things that we think will make the world a better place for founders.
Does being an investor make you a better CEO? And if so, how?
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